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Saturday, July 13, 2024

MEDIA EXTRACTS ON CHINA #488

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Graham Perry
Graham Perry
Experienced Arbitration Lawyer | China & Chinese Business Affairs | Public Speaker/Lecturer.

GOOD MORNING FROM LONDON

#1  DEVELOPMENTS RE EVERGRANDE

#2  CHINA AND TAIWAN – WAR TALK SUBSIDES

#3  GRAPHITE EXPORTS AGAIN

#4  THE CHINESE LETTUCE FROM A VERTICAL FARM

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#1  DEVELOPMENTS RE EVERGRANDE

      SOUTH CHINA MORNING POST

Creditors of heavily indebted property developer China Evergrande Group were surprised on Monday [4 December 2023] by a Hong Kong court’s decision to once again postpone a winding-up case against the company.

Lawyers for Evergrande argued during the hearing that no creditors were “actively seeking” its liquidation. Hong Kong High Court Justice Linda Chan accepted that argument and set the next hearing for Jan 29.

Chan instructed Evergrande, whose woes have been at the heart of China’s property crisis, to inform all parties of the details of the restructuring plan by seven days before the next hearing.

“Transparency is also key,” she said during the hearing. “Given the fluid nature of the matter, it’s difficult to imagine what is going to happen in the next hearing,” Chan added.

This is the sixth adjournment since Top Shine Global, an offshore creditor, filed a winding-up petition against Evergrande in June 2022.

Evergrande shares rose in Monday morning trading in Hong Kong, at one point gaining 13% from the close last week to touch 0.27 Hong Kong dollar, while the benchmark Hang Seng Index headed south.

According to a filing made to the stock exchange of Hong Kong on Thursday, Hengda Real Estate Group — Evergrande’s core onshore subsidiary — has unpaid debts of 301.36 billion yuan ($42.44 billion) plus overdue commercial bills of 205.93 billion yuan. It is also facing 2,002 litigation cases involving more than 30 million yuan each, totalling 470.75 billion yuan as of the end of October, according to the filing.

Once the largest developer in the country, the demise of Evergrande comes amid a crackdown on the over-leveraged industry led by Chinese President Xi Jinping, which kicked off in August 2020 when the “three red line” policy was introduced. The three red line policy is a measure of financial strength that developers must meet to borrow further. Companies are scored on a four-color system from green to red.”

GRAHAM PERRY COMMENTS; THE LARGE SCALE FAILURE OF EVERGRANDE IS BEING VIEWED WITH GLEE AND CELEBRATION BY CRITICS OF CHINA. THE FIGURES SPEAK FOR THEMSELVES AND POINT TO SEVERE WOES WITHIN THE PROPERTY SECTOR OF CHINA’S ECONOMY. THE CRITICS WELCOME THE BAD NEWS AS EVIDENCE OF THE FUNDAMENTAL FAILURE OF CHINA’S EXPERIMENT WITH CAPITALISM AND CONCLUDE THAT IT IS CAUSING CHINA’S POPULATION TO QUESTION THE CAPACITY OF THE PARTY TO CONTINUE TO PRESIDE OVER THE FUTURE DEVELOPMENT OF THE ECONOMY. CERTAINLY THERE ARE BIG LOSERS IN CHINA AND THE FOCUS IS ON THE ABILITY OF THE PARTY TO CORRECT THE PROPERTY SLUMP AND RESTORE CONFIDENCE OF PEOPLE WHO HAVE LOST PERSONAL SAVINGS. THERE MUST BE DISCONTENTED PEOPLE IN CHINA TODAY AND THE CHALLENGE TO XI JINGPING IS TO PRESIDE OVER A TURNAROUND THAT JUSTIFIES THE PARTY’S CLAIM TO CONTINUE TO LEAD THE PEOPLE AS THE 100TH CENTENARY OF THE PEOPLES REPUBLIC OF CHINA COMES INTO VIEW.

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CHINA AND TAIWAN – WAR TALK SUBSIDES

NIKKEI ASIA

Taiwan’s presidential election on Jan. 13 is just weeks away and military pressure on the island by mainland China is on the rise. Yet, conversations with residents on the self-governed island suggest that a crisis in the Taiwan Strait is not a large concern.

In mid-November, Taiwan’s Defense Ministry allowed Nikkei and other Japanese news outlets to witness a military jet exercise at the Ching Chuan Kang Air Base in Taichung, near the Taiwan Strait. The drill was a simulated response to Chinese military aircraft entering Taiwanese airspace.

A pilot at the base told Nikkei that he had gotten as close as 2 kilometers to a Chinese military plane. “It was tense at first, but we are always careful not to provoke the other side,” he said. He was pensive when asked whether China would invade. “Personally,” he said, pausing with a smile, “we’re prepared for whatever happens.”

The Russian invasion of Ukraine in February 2022 has undoubtedly stoked  a greater awareness in Taiwan’s defense among the island’s people.

President Tsai Ing-wen, whose Democratic Progressive Party takes a tough stance on China, extended mandatory military training for men 18 and above to one year in 2024 from the current four months. The extension has not sparked any major pushback so far, and the Taiwanese youth seem to largely accept the change.

During a recent visit to the Kaohsiung Municipal Sanmin Senior High School, one student said “I don’t think China will actually attack us, but it’s important to be prepared,” one said.

A guide on a government tour aid recently “China won’t invade, we have TSMC,” reflecting a growing sense of security in Taiwan. Taiwan produces roughly 90% of the world’s cutting-edge semiconductors. Many seem confident the U.S. and Japan will protect Taiwan in the event of a crisis, since it is home to many chipmakers that are critical to their economic security, such as Taiwan Semiconductor Manufacturing Co.

It seems unlikely that the Chinese leadership will simply do nothing if the DPP, which does not recognize that Taiwan and the mainland are part of “one China,” secures another presidential term. The fading concerns in Taiwan over China could be taken as a slight as well by the Xi government.

“China’s domestic economy is currently in a tough situation, and a military action on Taiwan would cost it too much,” a security analyst close to the DPP said on condition of anonymity.”

GRAHAM PERRY COMMENTS; IN THE RECENT BIDEN-XI JINPING MEETING IN CALIFORNIA PRESIDENT BIDEN MADE CLEAR THAT THERE WAS ONLY ONE CHINA. HE DID NOT ATTEMPT TO RENEGE ON PRESIDENT NIXON’S 1972 COMMITMENT THAT TAIWAN WAS PART OF CHINA AND IN DOING SO HE LESSENED THE TENSION THAT THE TWO COUNTRIES ARE ON AN INEVITABLE COLLISION COURSE.

AND YET TENSIONS REMAIN AND THE TAIWAN STRAITS REMAINS A KEY FOCUS POINT FOR WORLD PEACE. IN MY VIEW CHINA DOES NOT WANT TO INVADE TAIWAN AND NEVER HAS WANTED TO INVADE TAIWAN. CHINA HAS BEEN CONTENT TO WAIT BELIEVING THE PRESSURE OF HISTORY WILL BRING ABOUT A RECONCILIATION WITHOUT ARMED CONFLICT.

THERE IS ONE SIGNIFICANT “BUT”. “SECESSION” IS A COMPLETE NO-NO. ONE THEME THAT RUNS THROUGHOUT THE HISTORY OF CHINA SINCE 1949 HAS BEEN ITS RIGID DETERMINATION NOT TO ALLOW ANY PART OF WHAT CHINA VIEWS AS BEING CHINA TO SEPARATE OFF AND FORM AN INDEPENDENT ENTITY. CHINA WILL NOT ALLOW THE US TO TAKE ACTION TO ENCOURAGE SECESSION – HENCE CHINA’S INTENSE MILITARY RESPONSE TO NANCY PELOSI’S  VISIT.

REFERENCE TO TSMC POINTS TO A KEY STRATEGIC POINT OF VULNERABILITY – MORE FOR THE US THAN FOR CHINA. IT IS SEMICONDUCTORS SCS AGAIN. CHINA IS MAKING RAPID PROGRESS IN THEIR OWN MANUFACTURE OF SCS. THE US, HOWEVER, IS ENCOUNTERING HEADWINDS IN ITS PLAN TO BUILD FIVE NEW SCS PRODUCTION FACILITIES IN THE US – PHOENIX, IN PARTICULAR, HAS FOUND PROGRESS VERY DIFFICULT.

THE FLOW OF SCS INTO THE US IS CRUCIAL TO THE STABILITY OF THE US. NO SCS INTO THE US AND US INDUSTRY COMES SHUDDERING TO A HALT. IT IS THAT DRAMATIC AND AMERICAN STRATEGISTS ARE WELL AWARE OF THE COUNTRY’S VULNERABILITY.

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#3  CHINA’S GRAPHITE EXPORT BAN

NIKKEI ASIA

China on Friday began requiring government approval for exports of graphite, a key material for batteries used in electric vehicles, in an apparent counter to U.S.-led curbs targeting China’s tech sector.

What started this all? What made this hare start to run. In a word it was “Trump”. Towards the end of his four year term, he recognised that bringing China into the WTO had not turned China’s head. China’s priorities did not change. It remained committed to building a strong China, recovering Taiwan and competing with increased vigour with the US. China did not bow. It did not become compliant. It did not re-arrange its priorities. Its position was – and remains – that the world is big enough to embrace a growing US and a growing China.

Biden won the Presidential Election and pursued the same policy to China. From Washington there were more tariff increases, and more rules intended to hamper China’s progress. China has been responding. It has been protecting its interests and today the US is worried about three items in particular – semiconductors (SMs), electric vehicles (EVs) and the resilience of Huawei which has bounced back from US led embargoes against its products. (Recall from the previous issue of this newsletter the role Huawei is playing in promoting contact between Chinese maritime vessels in the Northern Sea Route.).

China produces 65% of the world’s graphite, according to the U.S. Geological Survey. Chinese companies are believed to control more than 80% of the market for automotive battery anodes, or negative electrodes, which typically use the mineral.

The export restrictions follow similar curbs imposed in August on chipmaking materials, such as gallium, and stricter controls in November targeting rare-earth metals that require exporters to report transaction details.

Beijing’s clampdown comes as China aims to become an EV powerhouse and position its companies at the heart of global automotive supply chains.

Chinese manufacturers have been moving to build battery components overseas. Ningbo Shanshan in September said it will invest up to 1.28 billion euros ($1.39 billion) to build an anode factory in Finland, aiming for mass production in two years. Shanghai Putailai New Energy Technology in May announced plans for a Swedish plant costing up to 15.7 billion kronor ($1.5 billion).

A total of 17 Chinese battery material makers have announced plans for 22 overseas factories this year, spending over 100 billion yuan ($14 billion), according to Chinese media.

“Under the national strategy to become a major automotive power, upstream and downstream companies are making an effort to develop a supply chain together,” Shanshan Chairman Zheng Ju said Wednesday at an international event

The Chinese government encouraged Chinese businesses to build anode production facilities in Sweden, and local authorities gave the green light. As a result, Chinese companies built a supply chain that made European companies more dependent on them, a person familiar with the situation said.

The European Union has opened an anti-subsidy investigation into Chinese EVs to determine whether China’s subsidies for its manufacturers are harming the EU auto industry. A source at a European company says China’s export restrictions appears to be an attempt to deter the EU probe.

A review of trade statistics from China’s General Administration of Customs shows that exports of items subject to the licensing requirements that took effect Friday have doubled in the last three years to $8.4 billion in 2022. This is believed to be due to growing demand, mainly for EVs.

GRAHAM PERRY COMMENTS;

ELECTRIC VEHICLES HAVE BEEN THE BIG TURNAROUND IN THE STRUCTURE OF CHINA’S EXPORTS. PREVIOUSLY JAPANESE CARS WERE EVERYWHERE – NOT NOW, JAPAN IS CLOSING ITS PRODUCTION FACILITIES IN CHINA BECAUSE IT CANNOT COMPETE WITH CHINA’S OWN ELECTRIC VEHICLE SECTOR. CHINA PLANS AHEAD. IT WATCHES. IT EXAMINES. IT ANALYSES. IT DRAFTS PLANS FOR PROGRESS AND DEVELOPMENT. IT DOES NOT JUMP WITHOUT THINKING FIRST. THE US IS PAYING THE PRICE FOR TRUMP’S FLAMBOYANT BIG CHANGE IN DIRECTION FROM PRO-CHINA TO ANTI-CHINA. NOT BECAUSE CHINA HAD CHANGED BUT BECAUSE CHINA HAD NOT CHANGED.

WASHINGTON’S FRUSTRATION WITH BEIJING IS INTENSE AND WE CAN BE SURE THAT THERE ARE VOICES IN THE CORRIDORS OF POWER URGING THE JOINT CHIEF’S OF STAFF “TO TAKE CHINA OUT – TODAY NOT TOMORROW.

CHINA KNOWS WHERE THE US IS COMING FROM BUT THE US DOES NOT KNOW WHERE CHINA IS COMING FROM. ONE OF THE REASONS IS THE FAILURE OF THE US TO MAINTAIN CLOSE RELATIONS WITH COUNTERPARTS IN CHINA – WASHINGTON DOES NOT UNDERSTAND CHINA’S MINDSET. THE PENTAGON AND CAPITOL HILL READ BOOKS ON CHINA AND ATTEND ACADEMIC ROUND TABLES BUT THEY DO NOT UNDERSTAND CHINA.

THE FIRST LESSON OF CONFLICT IS “TO KNOW YOUR ENEMY”. UNDERSTAND THEIR MOTIVATIONS, THEIR MIND SET AND THE CULTURAL NORMS. THEN YOU MIGHT GET IT RIGHT.

#4  THE CHINA’S UNMANNED VERTICAL FARM

       CCTV – CHINA

Chinese scientists have put the world’s tallest unmanned vertical farm into operation in the southwestern province of Sichuan, in response to official policy to reinforce the nation’s food security through technological innovation.

The 20-storey urban farm, built under the oversight of the Chinese Academy of Agricultural Sciences in a downtown part of the provincial capital Chengdu, represents world-leading automation in farming, according to state broadcaster CCTV.

It also marks the latest effort to leverage technological innovation to ensure there is enough food to feed the country’s 1.4 billion people, as the nation’s self-sufficiency drive has become increasingly prioritised against the backdrop of geopolitical tensions that could affect imports and supply chains.

Vertical farms, which have been seen in countries such as Japan, Singapore and the United States, are efficient agricultural systems that enable year-round continuous food production within multi-story structures. They can operate anywhere from urban settings to deserts, offering significant advantages in providing stable food supplies to areas where traditional farming is not possible.

During a July meeting of the Central Financial and Economic Affairs Commission, President Xi flagged issues threatening the country’s food security, including the abandonment of farmland; soil erosion and degradation; and the overexploitation of groundwater. Xi specifically mentioned the need to cultivate vegetables in urban and barren regions, and he pointed to success stories in Gansu province and the Xinjiang Uygur autonomous region, which have arid to semi-arid climates.

CCTV said that Chengdu’s vertical plant farm utilises a range of cutting-edge technologies – including autonomously bred crop varieties, a vertical three-dimensional cultivation system, an automatic nutrient-supply system, energy-efficient artificial lighting emulating natural conditions, and an AI-based control system – to ensure stable production within vertical spaces.

GRAHAM PERRY COMMENTS

WHY VERTICAL PLANTS?  TO ENSURE THERE IS ENOUGH FOOD TO FEED 1.4BN PEOPLE OF CHINA. AND WHY IS THIS A CONCERN NOW IN 2023? BECAUSE OF “GEOPOLITICAL TENSIONS THAT COULD AFFECT IMPORTS AND SUPPLY CHAINS.

CHINA KNOWS ITS VULNERABILITIES. IT KNOWS ITS WEAK POINTS AND ONE OF THE BIGGEST DANGERS IS THE INTERRUPTION TO THE FLOW OF FOOD IMPORTS. CHINA DEPENDS ON ITS MARITIME FLEET AND FEARS THAT IN THE EVENT OF HOSTILITIES WITH THE US AN ATTEMPT WILL BE MADE ON THE HIGH SEAS TO PREVENT THE DELIVERY INTO CHINESE PORTS OF ESSENTIAL FOOD IMPORTS. PRESIDENT XI JINPING STRESSED HIS CONCENS AND URGED THE CHINESE PEOPLE TO PLAY THEIR PART IN MINIMISING THE NEGATIVE CONSEQUENCE OF POSSIBLE HOSTILITIES. CHINA DOES NOT WANT WAR. IT DOES NOT SEEK CONTROL OF ANY TERRITORY THAT DOES NOT BELONG TO IT. BUT CHINA IS NOT IN CONTROL OF THE ACTIONS OF OTHER COUNTRIES. IT HOPES FOR THE BEST WHILST PREPARING FOR THE WORST.

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